Heidelberg Off to a Solid Start to New Financial Year

Heidelberger Druckmaschinen AG (Heidelberg) has started off the 2018/2019 financial year with growth in net sales and result. High demand for the newly established subscription model and the launch of series production of the Primefire digital press are demonstrating the potential the digital transformation offers the company.
 
Incoming orders, for example, improved in the first quarter (April 1 to June 30) by 6% to €665 million. Furthermore, the previous year’s figure of €629 million benefited from the Print China trade show. The order backlog grew by 18% to €714 million (previous year: €603 million), partly due to subscription contracts, particularly in terms of life cycle business, i.e. services and consumables.
 
The first quarter brought in the first revenues raised from subscription contracts, which generate recurrent sales over a term that usually lasts five years. Heidelberg also recorded growth in traditional business during the first quarter, with sales rising by 9% in total to €541 million, despite negative currency effects.
 
“The strong customer demand for our new subscription portfolio and digital packaging printing presses has exceeded our expectations. The establishment of the new business models is proceeding to plan and will at first make a relatively modest contribution to net sales and result, albeit one that will increase significantly in the medium term,” said Rainer Hundsdörfer, CEO of Heidelberg.
 
At €20 million, EBITDA excluding the restructuring result was higher than the same quarter of the previous year (€14 million), bringing the EBITDA margin up from 2.8% to 3.7%. Despite the additional staff costs associated with the new collective wage agreement, EBIT excluding the restructuring result was positive in this quarter, which traditionally records the weakest sales, at €2 million (previous year: €-3 million).
 
At €3 million, operating cash flow was on a par with the same quarter in the previous year (€1 million). Free cash flow of €-45 million in the quarter under review (previous year: €-13 million) can be attributed to a build-up in inventories due to the growing order backlog, investments in building the innovation center at the Wiesloch-Walldorf site and a non-recurring increase in leasing payments for buildings.
Despite the higher net financial debt, which is typical for the season and amounted to €278 million on June 30, 2018 (previous year: €234 million), leverage was 1.4, meaning it is still well below the target value of 2.
 
“Our financing structure is very solid. We have low leverage and are maintaining liquidity reserves we can use to finance our planned investments in new business models and the company’s digital transformation,” said Heidelberg CFO Dirk Kaliebe.
 
Given the good start to the year, Heidelberg is confirming its overall targets for 2018/2019. Consequently, it is still forecasting a moderate growth in sales. Due to this, and thanks to continued efficiency improvements, the EBITDA margin excluding the restructuring result is likely to lie in the range of 7% to 7.5%, despite higher collectively agreed wages.
 
The strong demand for the new subscription model is undiminished and has produced additional contracts in the quarter under review. Numerous contracts are also in the pipeline at present. Given the high level of interest international customers are showing in the pay-per-use model that Heidelberg alone offers in the sector, the target of a good 30 contracts for the current financial year is seen as very realistic. This is equivalent to potential sales of approximately €150 million over the contract period. The aim is to conclude at least 250 contracts by 2022.